Administrator’s Right of Indemnity

30.03.26
administrators-right-of-indemnity

In the administration of a company, how can the administrator be paid for their professional fees?

How can an administrator be indemnified for debts and liabilities incurred throughout an administration? In this article, Senior Associate Jesse Clough and Law Clerk Joseph Marescia of the Litigation and Dispute Resolution Division provide an overview of an administrator’s right of indemnity and how company property and assets can be used to provide such indemnities.

Administrator’s Right of Indemnity

Section 443D of the Corporations Act 2001 (Cth) (‘Act’) stipulates that the administrator of a company under administration is entitled to be indemnified out of the company’s property for:

  1. debts for which the administrator is liable in performing or purporting to perform the administrator’s functions as administrator; and/or
  2. any other debts or liabilities incurred, or damages or losses sustained in good faith and without negligence through performance of their functions as administrator; and/or
  3. the remuneration to which they are entitled.

The administrator is given a statutory lien on the company’s property under section 443F of the Act to secure the right of indemnity.

Under section 443F(2) of the Act, this statutory lien takes priority over any charge on the company’s property (including a floating charge), subject only to the exception for a PPSA security interest that is perfected within the meaning of the Personal Property Securities Act 2009 (‘PPSA’).[

What is a Lien?

A lien is a legal right to hold another person and/or entity’s property as security for the performance of an obligation, or the payment of a debt. Under Australian law, a lien can arise from common law and equity or be created by statute.

Third Party Interests in Company Property

The administrator may not be the only party with a lien on company property, such that a third party may have a secured interest in company property.

Section 440B of the Act imposes a moratorium on the enforcement of security interests in company property during administration, thereby preventing chargees and other secured parties from dealing with or enforcing against company property without leave of the Court or the administrator’s consent.

As a general rule, the administrator’s statutory lien takes priority over a charge over company property, and a chargee cannot enforce the security interest during the administration without the consent of the administrator or leave of the Court. However, where a third party holds a PPSA security interest that is perfected, that interest may take priority over the administrator’s lien.

What if a Third Party is in Possession of Company Property?

A third party may interfere with an administrator’s lien on company property where the third party has both a secured interest and possession.

Section 440B(3) of the Act states that if a third party has a security interest for possession of company property, the third party may continue to possess the property during the company’s administration if the property is in lawful possession. However, a third party cannot sell or liquidate the property, or otherwise enforce the security interest.

Suppose the third party’s possession is unlawful. In that case, the administrator may be able to take possession of the company property or assets despite the third party’s possessory security interest, subject to the specific circumstances.

Ramsden Lawyers – How We Can Help You

Navigating your right of indemnity as an administrator of a company under administration can be difficult. If you are unsure of how to lawfully exercise your right of indemnity or have a dispute relating to possession of company property, we encourage you to seek professional advice at the earliest opportunity to comprehensively consider your options.

If you are seeking legal advice, Ramsden Lawyers can assist you. We are happy to arrange an obligation-free initial consultation to assist you in navigating the relevant legislation for your circumstances. Our Litigation and Dispute Resolution Division has extensive expertise in advising administrators and other stakeholders on their rights and obligations in voluntary administrations.

The content of this article is intended to provide general guidance to the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.